INTERNATIONAL ARBITRATION

LAWCOMM702

Investment treaty arbitration with regards to the

choice of an arbitration forum

ELIAN SOULEYMAN EID, 8485145

LAWCOMM702 - International Arbitration, research essay

Word count in research essay is 13.600 in the main text excluding

footnotes, bibliography and table of contents.

Table of contentsI Introduction 3

II Topic and Methodology 4

III Outline of International Arbitration 5

A Definition of International Arbitration, and the Coming of the Arbitration Agreement in short 5

B Two Forms of Conducting an International Arbitraton – Ad hoc or Institutional Arbitration 6

IV Investment Treaty Arbitration 7

A The Importance of International Investments 8

B Bilateral - and Multilateral Investment Ttreaties 9

C Two Arbitration Institutions – ICSID and ICC, Ad hoc Arbitration – UNCITRAL Arbitration Rules2010 and the National Courts of the Host State 13

D Danish Bilateral Investment Treaties 25

E The Choice of an Arbitration Forum in an Investment Treaty Dispute 32

V Conclusion 37

Bibliography 39

2

I Introduction

The reality today is that we are all

interdependent, and have to co-exist on this small

planet. Therefore, the only sensible and

intelligent way of resolving differences and

clashes of interests, whether between individuals

or nations, is through dialogue.1

This was a quote from the Dalai Lama in 1997, and can be

interpreted to the importance of an interacting evolving world.

International trade and investments play a major role in the

world’s economy, and dialogue between countries around the world

1 The Dalai Lama ”Statement of His Holiness the Dalai Lama on the 38th Anniversary of Tibetan National Uprising Day” (10 March 1997) Tibet-Awareness-Site <www.tibet.dharmakara.net>.

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is of both big importance and big significance. The element of

internationalization is very much in focus, and countries across

the world enter into both international commercial - and

investment contracts with each other. Parties who enter into such

contracts are both interested in entering into the contract, but

also in protecting themselves and securing their own positions.

The method of protecting all parties entered into a contract is

the legal aspect of the contracts entered into. One of the matters

to be considered when entering into a contract is the matter of

disputes arising out of the contract. How are the parties sure of

the disputes being resolved, the end-result to be enforced, and

how are the parties protected in such a situation? What makes such

a dispute difficult is because the contracting parties are

different states with different national rules for resolving a

dispute. The question in such a situation is which rules are to be

used in resolving the international dispute? This answer to this

question also depends on what kind of contract is in question.

International arbitration is a method for resolving international

disputes, which has become more popular over the years, because it

has advantages to the proceedings, which domestic court

proceedings does not have, such as confidentiality,

enforceability, and a final binding decision which is not subject

to an appeal.2 International disputes can arise either from

commercial contracts, investment contracts or bilateral and

multilateral investment treaties. If it is commercial contracts,

and arbitration is the method for solving the dispute, then it

will be commercial arbitration, which is not the focus area in

this essay. If it is however investment contracts or bilateral

2 Phillip Capper International Arbitration: A Handbook (Dispute Resolution Guides) (3rd ed., LLP, London, 2004) at 7 and 8.

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investment treaties3 where arbitration is the method for solving

the dispute, it will be investment treaty arbitration, which is

the focus area in this essay.

II Topic and Methodology

This research essay will examine what the most comprehensive and

advantageous choice of an arbitration forum is to be chosen in the

case of an investment treaty dispute and the settlement thereof.

The chosen arbitration institutions are the International Centre

for Settlement of Investment Disputes4, ICSID, and the

International Chamber of Commerce, International Court of

Arbitration5, ICC. The United Nations Commission on International

Trade Law Model Law on International Commercial Arbitration 1985

(amended 2006)6, UNCITRAL Model Law and the UNCITRAL Arbitration

Rules 1976 (as revised in 2010)7 will also be examined. There will

also be a reference to the choice of the national courts in the

host State of where the investment takes place to settle an

investment treaty dispute.

3 Bilateral investment treaties are from here on referred to as BIT and BITs where they are in multiples. 4 The International Centre for Settlement of Investment Disputes is from here onreferred to as ICSID. 5 The International Chamber of Commerce, International Court of Arbitration is from here on referred to as the ICC. 6 The United Nations Commission on International Trade Law Model Law on International Commercial Arbitration 1985 (amended 2006) is from here on referred to as the UNCITRAL Model Law. 7 The UNCITRAL Arbitration Rules 1976 (as revised in 2010) are from here on referred to as the UNCITRAL Arbitration Rules 2010.

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The answer to the topic can only be given by examining how the

arbitration procedures are in the two aforementioned arbitration

institutions and in the UNCITRAL Arbitration Rules 2010. Since an

investment treaty dispute arises from the breach of a BIT, I will

analyse how such a BIT can be breached in regards to what rights

and protections the BIT offers for the foreign investor, and what

arbitration forum such a BIT refers to. I have chosen to analyse

two different BITs that Denmark has entered into with two other

states. The choice of Danish BITs is to have a Danish perspective

on the choice of an arbitration forum.

I have chosen to delimitate the numbers of different arbitration

forums to be examined, so even though the Arbitration Institute of

the Stockholm Chamber of Commerce8 and the Cairo Regional Centre

for International Commercial Arbitration9 also are institutions

that resolve investment disputes, my focus is only on ICSID, ICC,

UNCITRAL Arbitration Rules 2010 and national courts of the host

State for resolving the investment dispute.

III Outline of International Arbitration

A Definition of International Arbitration, and the Coming of the Arbitration

Agreement in short

8 The Arbitration Institute of the Stockholm Chamber of Commerce ”SCC Arbitration” – the Arbitration Institute of the Stockholm Chamber of Commerce <www.sccinstitute.com>. 9 The Cairo Regional Centre for International Commercial Arbitration ”Services” – the Cairo Regional Centre for International Commercial Arbitration <www.crcica.org.eg>.

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Arbitration is defined as:10

A process by which parties consensually submit a

dispute to a non-governmental decision-maker,

selected by or for the parties, to render a

binding decision resolving a dispute in accordance

with neutral, adjudicatory procedures affording

each party an opportunity to present its case.

This means that two domestic parties who have entered into an

agreement can choose arbitration as a method for resolving a

dispute arising out of the agreement. However, there are also

cases where a dispute arises from an agreement between two parties

in two different states. These kinds of disputes can also be

solved with arbitration, which then would be international

arbitration. The New York Convention on the Recognition and

Enforcement of Foreign Arbitral Awards of 195811 sets the frame for

international arbitration as a method of solving disputes arising

from international agreements.12 Article I (1) in the New York

Convention states that:13

This convention shall apply to the recognition and

enforcement of arbitral awards made in the

10 Gary B Born International Arbitration: Law and Practice (Kluwer Law International, Alphenaan den Rijn, 2012) at 4. 11 The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 is from here on referred to as the New York Convention. 12 Capper, above n 2, at 3. 13 The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 330 UNTS 3 (opened for signature 10 June 1958, entered into force 7 June 1959).

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territory of a State other than the State where

the recognition and enforcement of such awards are

sought, and arising out of differences between

persons, whether physical or legal.

The above-mentioned article states that the New York Convention

applies to international arbitration, so there has to be an

international element in the agreement, before the New York

Convention applies. The international element is that it is an

agreement across borders; the parties are from two different

states. The New York Convention has set down rules for obtaining

recognition and enforcement of international arbitration awards,

which means that if the parties in an agreement have chosen

arbitration to resolve a dispute that arises from the agreement,

they can count on that the arbitral award from the arbitration has

means of being recognized and enforced across states. The

arbitration award is therefore enforceable in most states around

the world, as long as the countries concerned have ratified the

New York Convention. The United Nations Commission on

International Trade Law Model Law on International Commercial

Arbitration 1985 (amended 2006)14, the UNCITRAL Model Law15 also

applies to international arbitration hence article 1 (1)16, and

there must be an international element in the agreement for the

UNCITRAL Model Law to be applicable, which is stated in article 1 14 The United Nations Commission on International Trade Law Model Law on International Commercial Arbitration 1985 (amended 2006) is from here on referred to as the UNCITRAL Model Law. 15 The UNCITRAL Model Law is a legislative text from UNCITRAL that is to assist in the form of inspiring states in their own national arbitration laws, in orderto create uniformity in the arbitration rules in countries around the world. Thepurpose is to harmonize the treatment of international commercial arbitration. 16 United Nations Commission on International Trade Law UNCITRAL Model Law on International Commercial Arbitration (amended 2006) (1985).

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(3)17. International arbitration is based on the New York

Convention and the UNCITRAL Model Law.18

International arbitration can only come in force by an agreement

to arbitrate in the case of resolving a dispute, which is defined

in the New York Convention article II (1).19 This arbitration

agreement is most often contained in a clause as a part of the

parties contract. The arbitration agreement is not only applicable

if it is an agreement in a contract; it is also applicable if it

is a clause in a treaty that covers the party. The choices the

parties make in the arbitration agreement are of big significance

if a dispute is to arise. Some of the most important matters are

the place of the arbitration, the law applicable to the

arbitration agreement, the law applicable to the arbitral

proceedings and if the arbitration is to be conducted by an

arbitration institution or not.20

B Two Forms of Conducting an International Arbitration – Ad hoc or

Institutional Arbitration

When parties have chosen to enter into an international

arbitration agreement with each other, they must also choose if

they want the arbitration to be conducted either by an arbitration

institution, or by themselves and the arbitral tribunal. The

17 United Nations Commission on International Trade Law UNCITRAL Model Law on International Commercial Arbitration (amended 2006) (1985).18 Capper, above n 2, at 3 and 18. 19 The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 330 UNTS 3 (opened for signature 10 June 1958, entered into force 7 June 1959). 20 Margaret L Moses The Principles and Practice of International Commercial Arbitration (2nd ed., Cambridge University Press, New York, 2012) at 9.

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latter is called ad hoc arbitration or non-institutional

arbitration, and there is no administering institution to the

arbitration. The choice about how the arbitration is to be

conducted is made in the arbitration agreement, and it is here

referred to if it is either ad hoc arbitration or institutional

arbitration.21

1 Ad hoc arbitration

This kind of arbitration is conducted by the party’s arbitration

agreement. In the agreement the parties have chosen their own

rules of arbitral procedure, how the arbitration shall be done, or

they also have the choice of choosing rules that are already made,

which are the UNCITRAL Arbitration Rules. These are an already

pre-existing set of rules, which parties can choose to be applied

to their ad hoc arbitration, so they do not have to make their own

set of rules to be applied to the arbitration. These already made

rules identify the issues that matters the most in an arbitration

procedure, e.g. the choice of arbitrators. They are to insure that

parties do not forget to discuss very important matters in the

case of a dispute arising, and the dispute settlement hereof.22

2 Institutional arbitration

If the parties have chosen an institution to conduct their

arbitration, there will in the arbitration agreement be a

reference to which institution they have chosen, and which rules

are to be applied to the arbitration. The rules will be

incorporated into the arbitration agreement, which is a part of

21 Capper, above n 2, at 30. 22 Born, above n 10, at 27 and 28.

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the contract between the parties. An arbitration institution will

therefore administer the arbitration.23 The rules from the chosen

arbitration institution set the frame for the proceedings of the

arbitration. The role of the institution and the rules they are

applying are of multiple functions. The functions are to provide

the parties with an already established arbitration clause, help

in choosing the arbitrators or the arbitral tribunal, they handle

the payment of the arbitrators and other expenses, and they

provide support with the administrative part of the arbitration.

IV Investment Treaty Arbitration

International arbitration is used as a method for resolving

disputes in both commercial arbitration and investment

arbitration, also called investor-state arbitration24. The

difference between these two categories of international

arbitration is what kind of contract the dispute arises from. In

commercial arbitration the dispute arises from a commercial

contract, usually between two private parties, and where it is a

matter of contractual claims. In investment arbitration at least

one of the parties is a state, and the dispute arises from either

an investment contract or a BIT, and the arbitration clause will

either be in the investment contract or in the BIT. The concerned

parties in investment treaty arbitration is a national from one

state and the contracting state,25 which means that the national

from one state is the foreign investor, and the contracting state

is the host State.26 23 At 27. 24 At 411. 25 At 411 and 412. 26 At 417.

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A The Importance of International Investments

International foreign investments play a major role in the world’s

economy. It can make a country more competitive and evolving in an

international globalized world like today. It is desirable for all

countries to attract foreign investment, because it develops

economic growth in the countries. International investment

agreements are based on the desire of wanting to progress foreign

investments in the countries of the contracting parties, and also

a means of trying to get rid of obstacles for easy trade and

foreign investment. Even though foreign investments are attractive

to both the host State27, and to the international foreign investor

from the home State28, to invest in the host country, it is also a

must for both parties to be secured in their investment.29

After World War II there was a need for economic growth and

expanding the global economy, which meant that international trade

and foreign investment was in focus.30 The law that was applied to

international foreign investment was international investment law,

where foreign investors did not have sufficient protection from

the actions that the host State government could do to foreign

investors, such as expropriating the foreign investment and

changing the national laws in the host States in order to secure

the host State’s position in regards to the foreign investment and

27 Capper, above n 2, at 135.28 At 137. 29 Moses, above n 20, at 230 and 231. 30 Jeswald W Salacuse The Three Laws of International Investment: National, Contractual and International Frameworks for Foreign Capital (Oxford University Press, Oxford, 2013) at 338.

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compared to the foreign investor.31 This necessitated protection

for the foreign investor, because it was not attractive for

foreign investors to invest in a country where they were not sure

how their investment would be handled. The foreign investors could

not bring a direct claim against the host State government in the

state courts of the host State, if the foreign investors had a

claim against the host State. The foreign investors had to wait

for their own government to bring the claim against the host State

government. The foreign investors had to rely the security on

their investments on international investment law, which meant

that the foreign investors had to wait until their home State

would provide diplomatic protection for them.32 The home States

were to espouse their national investors claims.33 This did not

attract investments in particular, because the investors were not

sure if their home State would help them or not. The home State’s

help depended on political accounts and matters as such for the

home State, and the relations with the host State.34 However, a

foreign investor could also have entered into a separate

arbitration agreement with the host State in order to be sure of a

method of settling the dispute instead of relying on international

investment law.35 The international investment law ultimately meant

that there was no direct access for foreign investors to directly

bring a claim against a host State. However in order to protect

and promote foreign investments, countries started to enter into 31 Capper, above n 2, at 135.32 Stephan W Schill The Multilateralization of International Investment Law (Cambridge University Press, Cambridge, 2009) at 45 and 46. 33 August Reinisch and Loretta Malintoppi ”Methods of Dispute Resolution” in Peter Muchlinski, Federico Ortino and Christoph Shreuer (eds) The Oxford Handbook ofInternational Investment Law (Oxford University Press, Oxford, 2008) 692 at 712 and 713. 34 At 713. 35 Salacuse, above n 30, at 343.

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BIT’s with each other, and there were also attempts to make

multilateral agreements. The purpose of this was to develop the

economy of the countries where the investment was made, but also

for more possibilities for foreign investors to invest.36 This was

the beginning of countries around the world entering into BITs

with each other.37

B Bilateral - and Multilateral Investment Treaties

A BIT is an agreement between two contracting states in the

foreign investment area. The aim of a BIT is to promote and

protect foreign investments. Multilateral investment treaties are

between multiple contracting states, and not just two states. An

example of a multilateral investment treaty is the ICSID

Convention, which is the convention that established ICSID, an

arbitration institution.38 Because multilateral investment treaties

are between multiple states, there are also multiple interests to

consider when negotiating such a treaty. This makes such a treaty

complicated to negotiate and agree upon. Even though there have

been many different attempts to make such treaties to be

applicable in the foreign investment area, and there have been a

few successes, the movement of BITs has won more progress than

multilateral investment treaties.39

As stated in section one, the needs for BITs arose from the need

of wanting to increase foreign investments in the different 36 Simon Greenberg, Christopher Kee and J Romesh Weeramantry International Commercial Arbitration, an Asia-Pacific Perspective (Cambridge University Press, Cambridge, 2011) at 478. 37 Salacuse, above n 30, at 342. 38 Capper, above n 2, at 135. 39 Moses, above n 20, at 242.

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countries, which would be done by protecting foreign investors,

and thus better the different countries economies.40 A BIT is

negotiated between two contracting states, and is therefore

individual from any other BIT, and individual interests are taken

into account. It is regularly negotiated between a capital-

exporting state, which is the developed state and a capital-

importing state, which is the developing state.41 Even though the

BIT is negotiated between two states, it is very common that every

state has its own model treaty with common provisions instead of

having to negotiate a new and different BIT every time a state is

to enter into a BIT with another state. The matters concerned in a

BIT between two contracting states is generally the matters

concerned in all BITs throughout the BITs in the world.42 It is

standard protections and rights that are contained in a BIT. They

are standards as to how the foreign investor is to be protected

from the host State government, and these standard protections are

divided into two categories – substantive and procedural rights

and protections. If the host State does not comply with the rights

and protections, it would be violating the rights and protections

in the BIT, and that would be a breach of the treaty, so it would

be a treaty violation or an investment treaty dispute. The

procedural right in the BIT is what the foreign investor can make

use of if there is a treaty violation.43

1 Rights and protections in a BIT

40 Salacuse, above n 30, at 355 and 356. 41 At 354. 42 At 360. 43 Born, above n 10, at 415 and 416.

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The rights and protections in a BIT are of general terms, and it

is not fully specified what is meant by the different rights and

protections. The different treaty provisions therefore have been

and still are open to interpretation by the arbitration tribunals

in the different cases.44 There are six different substantive

rights and protection in BITs, and if the host State violates

these, then the foreign investor can make use of the procedural

provision that is contained in BITs, which is the dispute

settlement clause.

- There can be no expropriation of the investment without

compensation

- Fair and equitable treatment for the foreign investors and

the investments

- Full protection and security for the foreign investors and

the investments

- National treatment for the foreign investors and the

investments

- Most favoured nation treatment for the foreign investors and

the investments

- The usage of umbrella clauses for the foreign investors and

the investments

These are the six rights and protections that the foreign

investors benefit from through a BIT.45 A short review of each

right and protection will follow.

(a) Expropriation

44 Greenberg, Kee and Weeramantry, above n 36, at 493 and 494.45 Capper, above n 2, at 138 and 139.

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A host State may under some circumstances expropriate the

investment legally. One of the circumstances is if it is for a

public purpose, or it could also be if it is non-

discriminatory. However expropriation has to be followed by

compensation.46

(b) Fair and equitable treatment

A foreign investor has a treaty-based right to be treated fair

and equitable by the host State. This can be referred to a

basis of an international minimum standard, or it can be

interpreted just as fair and equitable treatment, which

involves non-discriminatory actions from the host State,

transparency in the host State actions towards the foreign

investor and the foreign investors legitimate expectations.47

(c) Full protection and security

This right in the treaty is to ensure the foreign investor

that him and his investment are protected from acts of others

in the host State, either if it is physical or non-physical

acts.48

(d) National treatment

After this right the foreign investor has to be treated, as a

national investor in the host State would be treated, and not

less favourable as the national investor.49

46 Greenberg, Kee and Weeramantry, above n 36, at 494 and 495. 47 At 495 and 496. 48 At 496. 49 At 497.

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(e) Most favoured nation treatment

The foreign investor has a right to be treated no less

favourable than how a foreign investor from a third

contracting with the host State would be treated. So if there

is a right in the BIT between the host State and the third

state that gives a better protection to the foreign investor

from the third state, the foreign investor from the home State

should also be entitled to such better protection.50

(f) Umbrella clause

This clause regards if a breach of the contract from the host

State should have the status as a breach of the treaty, where

as the breach will be settled as according to how a breach of

the treaty would be settled. So the breach of the contract

would not just be settled after national law of the host

State, but would be settled after the law governing the BIT.51

The aforementioned rights and protections in a BIT are what a

foreign investor can claim a host State has breached in extension

of the BIT. In order for the foreign investor to have any belief

in that these rights are to be complied with, there must be an

independent institution that has the abilities and rights to make

sure that the provisions in a BIT are being complied with, or else

it would be an erosion of the rights in the BIT and the

accompanying protection.

The procedural provisions in a BIT contain a clause regarding the

resolving of an investment dispute, which gives access to 50 At 498. 51 At 499.

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investment treaty arbitration. This part of the BIT is one of the

most important protections in the BIT, because it is what makes

the host State comply with its obligations of protecting the

foreign investor and investment.52 This procedural provision is an

inclusion of an international arbitration agreement in the case of

a dispute arising from a BIT; it is a dispute settlement clause.

This means that foreign investors now can bring claims against the

host State directly, instead of relying on their own home State to

espouse the claims to the host State. In other words: where the

host States were once immune to having claims brought against them

by foreign investors, there is now being brought claims against

them in the case of a breach of the obligations in the BIT, which

would be an investment treaty dispute. It gives the foreign

investors the right to commence arbitration proceedings against

the host State if the host State has acted in breach of the BIT

towards the foreign investor or the investment.53 The above

mentioned rights and protections in a BIT are the claims that a

foreign investor can claim has not been complied with in an

investment treaty arbitration, so if the host State for example

has not complied with the national treatment right and protection

in the BIT, the foreign investor can claim a denial of national

treatment of the investment.54

In an investment treaty arbitration the power of deciding in the

foreign investment area is moved from the host State to a supra-

national level, where a decision is made. The power is moved from

the national level to an international level, and the host State

52 Salacuse, above n 30, at 398. 53 Greenberg, Kee and Weeramantry, above n 36, at 478-480. 54 Born, above n 10, at 429.

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has subsequently giving up sovereignty in the foreign investment

area.55 It has been outlined in the previous section in what

circumstances a host State can have a claim against them from the

foreign investor. The foreign investor can request for arbitration

in the case of the rights and protections in the BIT not having

been complied with because of the procedural provision in the BIT

that gives access to such arbitration. This procedural provision

that enforces the protection of the foreign investor appoints

different arbitration forums as the choice of where to request for

arbitration. The most common references to arbitration forums are

ICSID and UNCITRAL Arbitration Rules 2010, however investment

treaty arbitration can also be conducted under ICC. These are the

institutional arbitrations and ad hoc arbitration I referred to in

the main section of the research paper, which is outline of

international arbitration and section two below the main section,

which are the two forms of conducting international arbitration.

C Two Arbitration Institutions – ICSID and ICC, Ad Hoc Arbitration –

UNCITRAL Arbitration Rules 2010 and the National Courts of the Host

State

When a foreign investor requests an arbitration there is a choice

between different arbitration forums, which can be ICSID, ICC and

the UNCITRAL Arbitration Rules 2010. It is however in the BIT

between the concerned parties decided what the different

arbitration forums are. The reference to the national courts of

the host State is because if the investment treaty dispute were

55 M Sornarajah The International Law on Foreign Investment (2nd ed, Cambridge University Press, Cambridge, 2004) at 216.

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not to be settled by arbitration, then it would have to be decided

by the national courts of the host State.

I will only go through some of the matters concerned in the

different arbitration forums, so I will be able to compare these

to each other in order to be able to see if there is a difference

or not. This will help me in assessing which arbitration forum is

the most comprehensive and advantageous arbitration forum to

choose in the case of an investment treaty dispute.

1 ICSID – International Centre for Settlement of Investment Disputes

The ICSID Convention or the Washington Convention56, which

established ICSID in 1965, is an arbitration institution that

resolves investment disputes. It is also known as the Washington

Convention because it was established in Washington DC.57 For it to

be applicable in an investment dispute between the states in a

BIT, the states must have to be contracting parties to the ICSID

Convention, so the host State must be a contracting state to the

ICSID Convention and the foreign investor in the situation must be

a national of another contracting state. The arbitration clause in

the BIT must also refer to ICSID arbitration under the ICSID

Convention and the ICSID Arbitration Rules 200658 for ICSID

arbitration to be available to the parties.59 The ICSID does not

arbitrate the arbitrations, it just provides the facilities, such

56 International Centre for Settlement of Investment Disputes Convention (openedfor signature 18 March 1965, and entered into force 14 October 1966). 57 Lucy Reed, Jan Paulsson and Nigel Blackaby Guide to ICSID Arbitration (2nd ed, KluwerLaw International, Alphen aan den Rijn, 2011) at 1. 58 International Centre for Settlement of Investment Disputes Convention (openedfor signature 18 March 1965, and entered into force 14 October 1966). 59 Born, above n 10, at 412 and 413.

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as the institution and the procedural support for the arbitration.

It has a standard set of rules to be applied in an arbitration, to

how a arbitration is to be conducted, which are the ICSID

Arbitration Rules 2006 together with the ICSID Convention.60 The

ICSID Arbitration Rules 2010 are detailed procedure rules, which

will not be examined in this research essay.

When a party chooses to conduct arbitration under ICSID, it is in

article 25(1) defined what the jurisdiction of ICSID is, and in

what instances there is power to arbitrate.

- There has to be a legal dispute arising directly out of an

investment. This means that there has to be an investment

between the two parties, which is determined by the BIT that

the parties have entered into.61

- The disputes has to be between a contracting state and a

national of another contracting state, which means that a

natural person is a person that has citizenship in the

contracting state.62 So if for example the dispute is between

Egypt the state and a foreign investor from Denmark, the

contracting state would be Egypt and the foreign investor

from Denmark would have to have Danish citizenship in order

for ICSID to have jurisdiction in the dispute.

- Furthermore there must be consent to arbitration under ICSID

between the parties. This consent can be found in a BIT, and

it would still be enough to be consensus to arbitrate under

ICSID. The host State gives its consent when it enters into

the BIT, and when the foreign investor requests for

60 Reinisch and Malintoppi, above n 33, at 698 and 699. 61 Reed, Paulsson and Blackaby, above n 57, at 25. 62 At 27.

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arbitration it is considered as acceptance to arbitration

under ICSID.63

Article 25(1) in the ICSID Convention also states that the host

State has given up sovereignty when the dispute is being

arbitrated under ICSID.64 This also makes sense regarding that when

parties enter into an agreement to arbitrate an investment dispute

or when there is such a clause in a BIT, that the host State has

given up sovereignty to decide in the foreign investment area.

(a) Choosing the arbitration tribunal – article 37:

Article 37 in the ICSID Convention deals with the appointment of

the tribunal in the arbitration. Article 32(2)(a) states: “The

Tribunal shall consist of a sole arbitrator or any uneven number

of arbitrators appointed as the parties shall agree”. The

parties here have a choice of the arbitrators in the

arbitration. However, if they cannot agree on how to choose the

arbitration tribunal, then article 37(2)(b) determines such:

Where the parties do not agree upon the number of

arbitrators and the method of their appointment,

the Tribunal shall consist of three arbitrators,

one arbitrator appointed by each party and the

third, who shall be the president of the Tribunal,

appointed by agreement of the parties.

63 At 35 and 36. 64 At 51.

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In article 38 in the ICSID Convention there is a possibility

for the Chairman of the Administrative Council to choose the

third arbitrator or the not yet chosen arbitrators. The

circumstances for this provision to be applied is if the

parties have not decided who the third arbitrator should be or

if they have not chosen all three arbitrators within the 90-

day period from the arbitration request has been registered

and until the arbitration is to be constituted.

(b) Applicable law in the arbitration – articles 42 and 44:

When disputing parties have chosen arbitration under the ICSID

Convention, then it is the ICSID Convention that applies to

the arbitration agreement, and therefore the parties do not

have a choice of which law governs the arbitration agreement.

Regarding the applicable law to the proceedings under ICSID

arbitration, article 44 in the ICSID Convention determines

that the rules to be applied to the arbitration are the ICSID

Convention and with the ICSID Arbitration rules 2010, or

whichever were in force at the time of the consent to

arbitration. Article 42(1) constitutes the law applied to the

substance of the dispute. The disputing parties can choose the

applicable rules to the dispute themselves, and it can even be

rules from another jurisdiction than their own.65 If the

parties have not chosen the applicable law to the dispute,

then the arbitration tribunal is to apply the law of the

contracting state party to the dispute and with the rules of

international law that may be applicable as stated in article

42(1).

65 At 46. 24

(c) Final and binding and recognition and enforcement of the

ICSID award articles 52-54 – enforceability of the award and

execution thereof:

Article 53(1) in the ICSID Convention states:

The award shall be binding on the parties and

shall not be subject to any appeal or to any other

remedy except those provided for in this

Convention. Each party shall abide by and comply

with the terms of the award except to the extent

that enforcement shall have been stayed pursuant

to the relevant provisions of this Convention.

This means that the award that the arbitration tribunal has

decided upon is final and binding for the parties of the

dispute, and the substance of it cannot be tried in another

different court, and furthermore the losing party has to act

in accordance with the award.66 This is a very important part

of arbitration under ICSID. The recognition and enforcement of

the ICSID award is stated in article 54(1):

Each contracting state shall recognize an award

rendered pursuant to this Convention as binding

and enforce the pecuniary obligations imposed by

that award within its territories as if it were a

final judgment of a court in that state. A

Contracting state with a federal constitution may 66 At 181.

25

enforce such an award in or through its federal

courts and may provide that such courts shall

treat the award as if it were a final judgment of

the courts of a constituent state.

This provision applies to all the Contracting states to the

ICSID Convention, which means that the winning party can claim

the award not only necessarily in the state of the concerned

parties to the dispute, but also in many other states, as long

as the other states are Contracting parties to the ICSID

Convention. In this provision there is no access for the

losing party, usually the host State, to not comply with the

award and resist the grounds in which it is decided upon.67 The

award can be questioned by interpretation, revision and

annulment of the award after the articles 50, 51 and 52. The

annulment provision is the one stated in article 52(1) in the

ICSID Convention:

(1) Either party may request annulment of the

award by an application in writing addressed to

the Secretary-General on one or more of the

following ground:

(a) that the Tribunal was not properly

constituted;

(b) that the Tribunal has manifestly

exceeded its powers;

(c) that there was corruption on the part

of a member of the Tribunal;

67 At 182-184. 26

(d) that there has been

a serious departure from a fundamental rule of

procedure; or

(e) that the award has failed to

state the reasons on which it is based.

If one of the parties requests for an annulment of the award,

the concerned party has to apply for this annulment. It will

then be an ad hoc annulment committee with three members that

is to determine whether the grounds stated above in article

52(1) have been complied with or not. The outcome of such an

ad hoc annulment committee can be to annul parts of the award

or the entire award. If this happens the dispute will be

submitted to a new ICSID arbitration tribunal as determined in

article 52(6).68 This provision combined with the provision

about recognition and enforcement of the award makes the

system for challenging an ICSID award a closed system where it

seems easier to try and challenge an award, and where it will

be the same provisions that are applied to the settlement of

the dispute again. This ultimately means that a party cannot

appeal the decision to a national court in a state. The award

is final. This is not to be confused with the execution of the

award in the ICSID Convention article 54(3): “Execution of the

award shall be governed by the laws concerning the execution

of judgments in force in the State in whose territories such

execution is sought.” The provision means that even though the

award has been recognized and enforced, the execution of the

award is up to the national courts in the jurisdiction where

the execution of the award is to be made. In this area 68 At 162.

27

regarding the execution of the awards the states have not

given up sovereignty, and they still have sovereign immunity

regarding the execution of the award as determined in article

55.69

2 ICC – the International Chamber of Commerce, International Court of Arbitration and the ICC Arbitration Rules 2012.

The ICC is an institution that administers international

arbitration, both commercial and investment through the ICC

International Court and the Secretariat. The ICC International

Court does not settle the disputes in the arbitration, it is only

an administering body and has the function of supervising the

arbitrations as stated in article 1(2) of the ICC Arbitration

Rules 2012.70 The ICC International court reviews the awards before

they are finalized, meaning that the parties do not get the award

before the Court has reviewed it. The ICC International Court

scrutinizes the award as stated in article 33 of the ICC

Arbitration Rules. An arbitration conducted under the ICC is

arbitrated by the ICC Arbitration Rules, which makes the

arbitration conducted as an institutional arbitration. The ICC

Arbitration Rules apply a framework for the proceedings in the

arbitration, and can be adjusted, as the parties want them to be

adjusted. Usually the ICC Arbitration Rules are used in an

international commercial arbitration71, but the contracting parties

can either in a BIT or an international investment agreement

decide that the ICC Arbitration Rules are to be applied to the 69 International Centre for Settlement of Investment Disputes Convention (openedfor signature 18 March 1965, and entered into force 14 October 1966) at article 55. 70 The International Chamber of Commerce ICC Rules of Arbitration 2012 (1 January 1998).71 It is stated what the difference between commercial and investment arbitration is in the introduction about investment treaty arbitration.

28

investment treaty arbitration. This clause to arbitrate an

investment dispute, and the choice of the arbitration forum is to

be specified in either a BIT or an international investment

agreement.72 There has to be an arbitration agreement that refers

to the ICC as the arbitration institution to administer the

arbitration proceedings under the ICC Arbitration Rules. The ICC

has a Model Clause for Arbitration, which the parties can use if

they want the ICC as the arbitration institution. This will be a

part of the arbitration clause.73

The jurisdiction for the arbitration tribunal when conducting

arbitration under the ICC Arbitration Rules is firstly decided by

the arbitration agreement between the parties. In the arbitration

agreement the parties may have decided which law to be applied to

the contract is, the law of the seat of the arbitration, the

choice of arbitrators and other matters, such as the language of

the arbitration.74 This sets a boundary for what the arbitration

tribunal can do in the arbitration, because if the parties have

chosen the applicable law to be used in the arbitration and the

tribunal does not use this, but chooses to use another law, then

they go out of the scope of their jurisdiction, which can have the

consequence that the award can be set aside.75 The Standard ICC

Arbitration Clause states:76

72 Born, above n 10, at 30. 73 David AR Williams and Amokura Kawharu Williams & Kawharu on Arbitration (LexisNexis, Wellington, 2011) at 624 and 625. 74 Moses, above n 20, at 18. 75 At 67. 76 The International Chamber of Commerce The World Business Organization ”Standard ICC Arbitration Clauses” The International Chamber of Commerce <www.iccwbo.org>.

29

All disputes arising out of or in connection with

the present contract shall be finally settled

under the Rules of Arbitration of the

International Chamber of Commerce by one or more

arbitrators appointed in accordance with the said

Rules.

If there is a dispute between the parties arising out of the

contract, and they have a clause for arbitration under the ICC,

then there is jurisdiction for the ICC to administer the

arbitration.

(a) Choosing the arbitration tribunal – article 11, 12 and 13

will only be mentioned:

The parties can choose themselves if they want a sole

arbitrator or three arbitrators in the arbitration tribunal.

Article 12 states the number of arbitrators in the arbitration

tribunal. In article 12(2) the ICC International Court can

choose how many arbitrators there will be in the arbitration

tribunal if the parties have not agreed on this. In article 8

(3) and (4) which respectively is either the choice of a sole

arbitrator or three arbitrators, the parties can appoint or

nominate the arbitrators they would like to be in the

arbitration tribunal. However if the parties fail to do this

within the time limit stated in article 12(3), then the ICC

International Court will appoint the arbitrators. In the case

of the arbitration tribunal consisting of three arbitrators,

it is the ICC International Court that appoints the third

arbitrator who has the role of the president of the

30

arbitration as stated in article 12(5) tribunal, unless the

parties have agreed otherwise, but this choice would be

subjected to confirmation by the ICC International Court. In

article 11(4) it is up to the ICC International Court to

confirm the appointment of the sole arbitrator or the three

arbitrators chosen for the arbitration tribunal. When the ICC

International Court is to appoint either a sole arbitrator or

the president of the arbitration tribunal, then the appointed

arbitrators must be on a list that proposed different

arbitrators that is made by a National Committee of the ICC.77

(b) Applicable law in the arbitration – articles 19 and 21:

The law that governs the arbitration agreement is the law of

the seat of the arbitration, which the parties have chosen in

their arbitration agreement. Article 19 declares what rules

will be applied to the proceedings of the arbitration when

choosing the ICC as an arbitration forum:

The proceedings before the arbitral tribunal shall be

governed by the Rules and, where the Rules are silent, by

any rules which the parties or, failing them, the

arbitral tribunal may settle on, whether or not reference

is thereby made to the rules of procedure of a national

law to be applied to the arbitration.

This means that the procedural rules in the arbitration are

the rules in the ICC Arbitration Rules 2012, and if there are

77 The International Chamber of Commerce ICC Rules of Arbitration 2012 (1 January 1998) at article 13(3).

31

some places where the ICC does not have any rules, then the

parties can choose the rules, or if they have not done that,

then the arbitration tribunal will do that. The law that

governs the dispute between the parties is referred to in

article 21(1), in which the parties decide what rules of law

are to be applied to the dispute. If they have not chosen any

rules of law to be applied to the dispute, then the

arbitration tribunal can choose what rules of law to apply to

the dispute, whichever rules of law that they determine is

appropriate. This choice that the arbitration tribunal has in

regards to the choice of rules of law applied to the dispute

is also somewhat restricted by the law of the seat of the

arbitration, because these rules also have to be met, and

cannot be violated.78

(c) Recognition and enforcement of the ICC award – article 34

and the New York Convention:

When the ICC International Court has approved of the award

from the arbitration tribunal after article 33, then it is

binding for the parties, which is stated in article 34(6). If

the ICC International Court does not approve of the award, it

cannot change the award, but they can send it back to the

arbitration tribunal with comments.79 I have mentioned in

subsection 1 of the main section outline of international

arbitration, that the New York Convention is the convention

that makes the ratifying states to the convention recognize

and enforce foreign international arbitration awards. The New

78 AR Williams and Kawharu, above n 74, at 643.79 Moses, above n 20, at 11.

32

York Convention is to be applied to an ICC award regarding the

recognition and enforcement. Article III in the New York

Convention reads as such:

Each Contracting State shall recognize arbitral

awards as binding and enforce them in accordance

with the rules of procedure of the territory where

the award is relied upon, under the conditions

laid down in the following articles. There shall

not be imposed substantially more onerous

conditions or higher fees or charges on the

recognition or enforcement of arbitral awards to

which this Convention applies than are imposed on

the recognition or enforcement of domestic

arbitral awards.

Even though the contracting states to the New York Convention

have to recognize and enforce the arbitration award, it might

still be possible for the losing party in the arbitration to

challenge the award in the national courts of the seat of the

arbitration. It will then be the national laws in that state

where the seat of the arbitration was, that are to be applied

in determining what will happen with the award, if the award

can be set aside, annulled or nothing at all. However, there

are conditions that must be met before a party can challenge

the arbitration award. There cannot be a challenge to the

award on the grounds that the losing party is of the opinion

that there is a mistake of law or of the facts in the case.

The award can only be challenged either because the

arbitration tribunal did not have jurisdiction in the case, or33

because there was conducted a procedural mistake under the

proceedings, such as the arbitration agreement must be valid.

Usually a claim regarding the arbitration tribunal’s lack of

jurisdiction in the case is made at the beginning of the

arbitration and not after the award is made, so this will not

be much of a problem as opposed to the procedural issues. There

is still one more option left for the losing party to stop the

enforcement of the award, which is that they can bring an

action regarding the enforcement of the award to the national

courts in the state where the assets that are trying to be

seized are located.80

3 UNCITRAL Arbitration Rules 2010

The UNCITRAL Arbitration Rules81 can best be described as a

framework for the proceedings in an international arbitration.

There is no arbitration institution to conduct the arbitration

under these rules, it is the parties and the arbitration tribunal

that conduct the arbitration themselves, but with the use of the

UNCITRAL Arbitration Rules 2010.82 As explained in section 2.2 of

the main section outline of international arbitration these are

rules the parties can choose to be applied in ad hoc arbitration.

80 At 203-205. 81 United Nations Commission on International Trade Law UNCITRAL Arbitration Rules (as revised in 2010) (1976).82 Capper, above n 2, at 21 and 22.

34

The rules can be applied in both commercial arbitrations and

investment treaty arbitrations.83

The arbitration tribunal in an arbitration conducted by the

UNCITRAL Arbitration Rules is to stay inside the arbitration

agreement when conducting the arbitration. If there is a valid

arbitration agreement between the parties, then the arbitration

tribunal has jurisdiction in the case. The choice of the UNCITRAL

Arbitration Rules to be used in the arbitration sets limits for

what the arbitration tribunal has power to decide in the

arbitration, such as article 18 in the UNCITRAL Arbitration Rules

that decides, that the arbitration tribunal can choose the place

of the arbitration if the parties have not agreed on the place of

the arbitration.84 Article 1(1) refers to if the parties have

chosen the UNCITRAL Arbitration Rules:

Where parties have agreed that disputes between

them in respect of a defined legal relationship,

whether contractual or not, shall be referred to

arbitration under the UNCITRAL Arbitration Rules,

then such disputes shall be settled in accordance

with these Rules subject to such modifications as

the parties may agree.

The application of the UNCITRAL Arbitration Rules for the

arbitration tribunal is to stay inside this provision, and is also

what article 1(2) refers to:

83 AR Williams and Kawharu, above n 74, at 589. 84 Capper, above n 2, at 75 and 76.

35

These Rules shall govern the arbitration except

that where any of these Rules is in conflict with

a provision of the law applicable to the

arbitration from which the parties cannot

derogate, that provision shall prevail.

The rule stated above means that if the parties have chosen a law

to govern the arbitration and there are mandatory rules for the

arbitration, then the mandatory rules from the law that has been

chosen are to be applied in the areas where there are mandatory

rules. It only applies to the areas where the UNCITRAL Arbitration

Rules are in conflict with the mandatory rules.

(a) Choosing the arbitration tribunal – articles 6, 7, 8 and 9

will only be mentioned:

The parties in an arbitration where the UNCITRAL Arbitration

Rules are to be used can choose the arbitrators that are going

to constitute the arbitration tribunal, and they can also

choose how many arbitrators there is to be in the arbitration

tribunal. If the parties have not decided if there is to be a

sole arbitrator in the arbitration tribunal within the time

limit of 30 days from when the responding party has been given

notice about the arbitration, then there is to be three

arbitrators in the arbitration tribunal, which is required by

article 7(1). If the parties have not chosen a sole

arbitrator, then article 7(2) determines that an appointing

authority is to appoint a sole arbitrator for the arbitration

tribunal, but only upon request of a party in the arbitration.

An appointing authority in an arbitration with the UNCITRAL

Arbitration Rules is a given in article 6. The parties can

36

choose who this appointing authority is as stated in article

6(1). The appointing authority can be the different

arbitration institutions, such as the ICC, the ICSID or a

particular person.85 The article in the Rules refers to the

Secretary-General of the Permanent Court of Arbitration as a

suitable candidate for an appointing authority, but the

parties decide whom they want as appointing authority even

though the Secretary-General is listed as an option. In

article 8(1) the parties can choose the sole arbitrator in the

arbitration tribunal, and if they cannot agree on this matter,

then the appointing authority is to choose a sole arbitrator,

but only if asked by one of the parties. Article 8(2)

determines how the appointing authority is to choose the sole

arbitrator, which is by a list-procedure, but not if the

parties agree that a list-procedure is not to be used. Article

9(1) is regarding the appointment of three arbitrators if that

is the case in the arbitration. The parties are free to choose

an arbitrator each, and then the two arbitrators are to choose

the third presiding arbitrator of the arbitration tribunal. If

one of the parties does not choose an arbitrator, then the

appointing authority can choose the not yet selected

arbitrator, but only if the party that has chosen an

arbitrator asks the appointing authority to do so as in

article 9(2). Furthermore the appointing authority can also

choose the third presiding arbitrator, which is determined in

article 9(3). This is only if the two chosen arbitrators of

the arbitration tribunal cannot agree as to who the third

presiding arbitrator is to be.

(b) Applicable law in the arbitration – article 35: 85 AR Williams and Kawharu, above n 74 at 593.

37

The parties who have chosen the UNCITRAL Arbitration Rules as

to be applied to the arbitration are free to choose which

rules of law that are to be applied to the dispute. They also

choose the seat of the arbitration. What is meant by rules of

law is that the parties can choose different rules from

different laws, and not just rules from one national law.86 If

the parties have not chosen any applicable law to the dispute,

then it is up to the arbitration tribunal to choose the law to

be applied to the dispute. The choice of law the arbitration

tribunal makes, is what they determine to be appropriate to be

applied in the arbitration.

(c) Recognition and enforcement of the arbitral award – the New York Convention:

When the tribunal makes an award it is final and binding on

the concerned parties in the arbitration as stated in article

34(2). Furthermore the parties are to carry out the award

without delays as also stated in article 34(2). When an award

is made by an arbitration tribunal in an arbitration where the

UNCITRAL Arbitration Rules are applied, then the recognition

and enforcement of the award is assisted by the New York

Convention.87 This means, that the recognition and enforcement

of the arbitration award as mentioned in the section about

recognition and enforcement of arbitration awards that

conducted under the ICC, also applies to arbitration awards

that are made where the UNCITRAL Arbitration Rules are used as

procedural arbitration rules. There is a difference between

86 AR Williams and Kawharu, above n 74, at 604 and 605. 87 Reinisch and Malintoppi, above n 33, at 712.

38

the enforcement of an award conducted under the ICC and an

award conducted under the UNCITRAL Arbitration Rules, which is

at what time a claim regarding the lack of jurisdiction for

the arbitration trobunal is to be made. An award conducted

under the UNCITRAL Arbitration Rules states in article 23(2)

that the claim is not to be made later than in the statement

of defence, which is at the beginning of the arbitration as in

article 21. This is opposed to an award conducted under the

ICC, where it is not a requirement that there has been a claim

saying that the arbitration tribunal lacks jurisdiction in the

case at the beginning of the arbitration. There might, however

be restrictions in the rules of law that are used for the

arbitration, that states that a claim from the losing party

stating that there was no jurisdiction for the arbitration

tribunal is to be made in the beginning of the arbitration, or

else the party will loose this claim, so it depends on the

rule of law that is chosen for the arbitration conducted under

the ICC.88

4 National courts of the host State

If investment treaty arbitration is not an option for the parties

in the case of a dispute between the parties, then it is the

national courts of the host State who are entitled to resolve the

dispute between the parties. When the parties enter into a BIT,

then the host State has given up sovereignty to some extent,

because a BIT normally refers to arbitration to solve the dispute,

and not the national courts of the host State.89 The reasoning for

88 Moses, above n 20, at 205. 89 Born, above n 10, at 419.

39

BITs between contracting parties is to make foreign investors feel

safe and secure in their foreign investment in the host State.

Without such a safety for the foreign investor and the investment

the foreign investor cannot be sure of the host State not changing

their laws after the foreign investment is made. Furthermore if a

dispute occurs between the parties, and the dispute is to be

settled in the national courts of the host State, then the foreign

investor cannot be sure of the national courts of the host State

not being bias toward the host State and therefore acting unfairly

towards the foreign investor.90

D Danish Bilateral Investment Treaties

Denmark has entered into BITs with different developing

countries.91 There are different rights and protections in them. If

these rights and protections are violated, it will be a breach of

the treaty. It will be examined what rights and protections there

are in two treaties that Denmark has entered into with two

different states, and the choice of an arbitration forum in the

treaties.

1 BIT between Denmark and Egypt92

90 Salacuse, above n 30, at 355. 91 United Nations Conference on Trade and Development ”Investment Instruments Online” United Nations Conference on Trade and Development (12 December 2012) <www.unctadxi.org> a list of BITs between Denmark and other states. 92 Agreement between The Government of The Arab Republic of Egypt and The Government of The Kingdom of Denmark concerning the Promotion and Reciprocal Protection of Investments, Egypt-Denmark (24 June 1999).

40

Denmark and Egypt entered into a BIT in 1996.93 In the preamble the

purpose of the treaty between the two states is explained as

such:94

Desiring to create favourable conditions for

investments in both States and to intensify the

co-operation between private enterprises in both

States with a view to stimulating the productive

use of resources.

In article 1 there is a definition of some of the terms used in

the treaty, such as investment, investor and territory. An

investment is defined as every kind of asset.95 The investment is

to comply with the national legislation of the host State.96

Article 2 is regarding the promotion and protection of the foreign

investment.97

Investments of investors of each Contracting Party

shall at all times enjoy full protection and

security in the territory of the other Contracting

Party. Neither Contracting Party shall in any way

impair by unreasonable or discriminatory measures

the management, maintenance, use, enjoyment or

93 Agreement between The Government of The Arab Republic of Egypt and The Government of The Kingdom of Denmark concerning the Promotion and Reciprocal Protection of Investments (24 June 1999) UNCTAD Investment Instruments Online Bilateral Investment Treaties <www.unctadxi.org>.94 At preamble. 95 At article 1(1).96 At article 2(1). 97 At article 2(2).

41

disposal of investments in its territory of

investors of the other Contracting Party.

This is the provision regarding the full protection and security

of the foreign investor and foreign investment, as mentioned in

section 2.1.3 in the main section regarding the rights and

protections in a BIT.

The umbrella clause, which was mentioned in section 2.1.6 in the

main section regarding the rights and protections in a BIT, is in

article 2(3) in the BIT: “Each Contracting Party shall observe any

obligations it may have entered into with regard to investments of

investors of the other Contracting Party.”

The rights and protections regarding fair and equitable treatment,

national treatment and most favoured nation treatment are all

three mentioned in article 3. These rights and protections are

mentioned in sections 2.1.2, 2.1.4 and 2.1.5 in the main section

regarding the rights and protections in a BIT. In article 3(1) it

is the general provision stating how the investment is to be

treated.

Each Contracting Party shall in its territory

accord to investments made by investors of the

other Contracting Party fair and equitable

treatment which in no case shall be less

favourable than that accorded to its own investors

or to investors of any third State, whichever is

42

the most favourable from the point of view of the

investor.

In article 3(2) it is referred to how the investor is to be

treated regarding fair and equitable treatment, national treatment

and most favoured nation treatment. It is regarding the

“management, maintenance, use, enjoyment or disposal of their

investment”.98

Article 4 is regarding the exceptions that the host State can

make, regarding non-compliance with national treatment or most

favoured nation treatment. This entitles a right to the host

State.

The right and protection regarding expropriation is mentioned in

section 2.1.1 in the main section regarding the rights and

protections in a BIT. In this BIT this right and protection is in

article 5.99

Investments of investors of each Contracting Party

shall not be nationalised, expropriated or

subjected to measures having effect equivalent to

nationalisation or expropriation (hereinafter

referred to as “expropriation”) in the territory

of the other Contracting Party except for

expropriations made in the public interest, on a

basis of non-discrimination, carried out under due

98 At Article 3(2). 99 At article 5(1).

43

process of law, and against prompt, adequate and

effective compensation.

This provision gives a protection for the foreign investor not to

have the foreign investment expropriated by the host State, but it

also gives a right for the host State to expropriate when certain

demands have been met. The foreign investor also has a right to

compensation if the host State has not met the conditions for

expropriation. The compensation is to be valued after the rule in

article 5(2) and 5(3). In this case there is both a right and a

protection for the foreign investor, but there is also a right for

the host State.

Article 6 in the BIT is regarding the compensation which the

foreign investor is entitled to if there is a loss suffered to the

investment due to: “losses owing to war or other armed conflict,

revolution, a state of a national emergency, revolt, insurrection,

or riot in the territory of the latter Contracting Party”.100

Article 7 is regarding the transfers of capital and returns, where

the foreign investor has a right to transfer capital and returns

as mentioned in article 7(1)(a)-(g). Article 7(3) reads:

“Transfers shall be made at the market rate of exchange existing

on the date of transfer with respect to spot transactions in the

currency to be transferred”. The host State is to comply with this

if the foreign investor wishes to transfer capital and returns.

100 At article 6(1). 44

Article 8 is regarding subrogation of the investment. This means

that the host State is to comply with if the foreign investor

gives the rights or some of the investment to another party, so

this party has now subrogated in the foreign investors place.101

This is a right for the foreign investor.

If these rights and protections are breached, from either side of

the parties, then there is a right in the BIT, where the parties

can choose arbitration as a dispute resolution for solving the

dispute arising out of the investment. This will be an arbitration

clause in the BIT. It will be investment treaty arbitration,

because the dispute arises out of a treaty that has been breached.

Article 9 is the arbitration clause in this BIT, which refers the

dispute to arbitration. Article 9(1) refers to what kind of

dispute there is to be referred to arbitration, which is a dispute

that arises from the investment between the Contracting Parties,

the foreign investor and the host State. Article 9(2) refers to a

time period of six months, in which the parties have to wait,

before they can request an arbitration for the dispute. In the six

months the parties have to see if they can solve the dispute

without arbitration, which is a cooling down period for the

parties.102 In article 9(2)(a)-(d) the different choices of an

arbitration forum to request arbitration is listed.

(a) International arbitration of the International

Centre for Settlement of Investment Disputes

established pursuant to the Convention of the

101 At article 8(a) and (b). 102 Born, above n 10, at 426.

45

Settlement of Investment Disputes between States

and Nationals of other States opened for signature

at Washington D.C. on 18 March 1965 (ICSID

Convention), or

(b) an arbitrator or international ad hoc arbitral

tribunal established under the Arbitration Rules

of the United Nations Commission on International

Trade Law (UNCITRAL) or,

(c) arbitration under the Cairo Regional Centre

for International Commercial Arbitration, or

(d) Arbitration Rules of the International Chamber

of Commerce (ICC).

There is a choice of four different arbitration forums in this BIT

– ICSID Convention, UNCITRAL Arbitration Rules, Cairo Regional

Centre for International Commercial Arbitration or the ICC

Arbitration Rules. The parties are free to choice which

arbitration forum they want the dispute to be resolved under.

Article 10 is regarding if there is a dispute between the parties

concerning interpretation and application of the BIT, it is not a

dispute that arises from the actual investment, but from how the

BIT is to be applied. Such a dispute between the parties is also

referred to arbitration, but it is an already decided arbitration

tribunal that is to be constituted in such a situation. There is

not a choice of an arbitration forum, it is already set in stone

how such a dispute is to be solved.103

103 At article 10(1)(2)(3)(a-e). 46

Articles 11, 12, 13, 14, 15 and 16 are general provisions in the

BIT, which are made however the parties wish.

- Article 11 provides a right for both parties to propose to

each other to consult on a matter in the BIT, and the

application thereof.104

- Article 12 is about what the BIT is to be applied to, which

is every investment between the foreign investor and the host

State.105

- Article 13 provides a right for the parties to agree to amend

any provisions in the BIT, if they can agree on such.106

- Article 14 limits the application of the BIT as to not be

applied to the Faroe Islands and Greenland.107

- Article 15 gives notice of when the BIT is to enter into

force.108

- Article 16 explains for how long the BIT is to be in force

between the parties, which is ten years, and how to end the

BIT between the parties.109

2 BIT between Denmark and China110

Denmark and China entered into a BIT with each other in 1985.111 The

rights and protections in this BIT between the two states, is

104 At article 11. 105 At article 12. 106 At article 13. 107 At article 14. 108 At article 15. 109 At article 16(1) and (2).110 China and Denmark Agreement concerning the encouragement and reciprocal protection of investments, China-Denmark (29 April 1985). 111 Agreement concerning the encouragement and reciprocal protection of investments (29 April 1985) UNCTAD Investment Instruments Online Bilateral Investment Treaties <www.unctadxi.org>.

47

based on a model treaty, which is stated on the fact that the

framework of the treaty very much resembles the framework and the

rights and protections as in the treaty mentioned in the section

above regarding the BIT between Denmark and Egypt.

The preamble in this BIT and in the BIT between Denmark and Egypt

are very much alike.112 This also applies to the definitions stated

in article 1 in this BIT, that they are very much similar to the

definitions in the before mentioned BIT.113 The slight difference is

that in this BIT the emphasis is on other words to be defined, but

it is ultimately the same, such as nationals in this BIT just

means investor in the before mentioned BIT.114 The rights and

protections in this BIT are the same as the rights and protections

in the before mentioned BIT, they are just given different numbers

for the articles.

- Article 3(1) concerns the fair and equitable treatment of the

investment, and also the full protection and security of the

investment.115

- Article 3(2) concerns the national treatment and most favored

nation treatment to be applied to the investment. Article

3(3) just refers to what the treatment of the investment is

regarding to, which is the same as stated in the before

mentioned BIT.116

- Article 3(4) is the umbrella clause in the BIT.117

112 At preamble. 113 At article 1.114 At article 1(3)(a) and (b). 115 At article 3(1). 116 At article 3(2) and (3). 117 At article 3(4).

48

- Article 4 concerns the expropriation of the investment, both

for private foreign investors and for companies that are

foreign investors.118 What applied for expropriation in the

before mentioned BIT also applies for expropriation in this

BIT.119

- Article 5 concerns the compensation for the losses due to:

“war or other armed conflict, a state of national emergency,

revolt or riot in the territory of the latter Contracting

Party”.120 This is exactly the same regarding the before

mentioned BIT.121

- Article 6 concerns the transfer of capital and returns of the

investment.122 This is exactly the same as applied in the

before mentioned BIT.123

- Article 7 is when the foreign investor gives the rights or

some of the investment to another party, which then is the

rightful owner of the investment.124 This is also exactly like

the before mentioned BIT.125 This is called subrogation of the

foreign investment.

Article 8 is the arbitration clause in this BIT. However this

arbitration differs very much from the arbitration clause in the

before mentioned BIT. Article 8(1) states such:126

118 At article 4. 119 Page 29 in this research essay.120 At article 5.121 Page 29 in this research essay.122 At article 6.123 Page 29 in this research essay.124 At article 7. 125 Page 30 in this research essay. 126 At article 8(1).

49

In the event of a dispute between a national or

company of one Contracting Party and the other

Contracting Party in connection with an investment

in the territory of the other Contracting Party,

the national or company concerned may file

complaint with the competent authority of the

other Contrating Party. Negotiations for

settlement will then take place between the

parties in the dispute.

The dispute has to arise out of the investment between the foreign

investor and the host State, however, the dispute will not be

referred to arbitration, but only to file a complaint with the

competent authority of the other contracting party, which is the

host State. This means that the foreign investor has to make use

of national authorities in the host State in order to try and

resolve the dispute. If the national competent authority of the

host State does not resolve the dispute, then article 8(2) states

such:127

If such dispute cannot be thus settled within six

months, either Party to the dispute shall be

entitled to submit the dispute to the competent

court of the Contracting Party accepting the

investment.

This provision does not refer to investment treaty arbitration,

and it does not refer to an arbitration forum to resolve the

dispute. The foreign investor has to go to the national courts in 127 At article 8(2).

50

the host State for resolving the dispute, and make use of this as

means for resolving the dispute. It is only if the dispute that

needs to be resolved is regarding the amount of the compensation

from an expropriation through the BIT of the investment, that the

foreign investor can request arbitration.128 However if the dispute

is not regarding such a breach of the treaty, but is e.g. the

breach of full protection and security of the investment or a

breach of fair and equitable treatment of the investment then the

foreign investor has to rely on the national courts in the host

State to resolve the dispute. In this circumstance the host State

has not given up sovereignty in the investment area, because it is

still up to the host State to resolve a dispute from an investment

covered by the BIT between Denmark and China.

E The Choice of an Arbitration Forum in an Investment Treaty Dispute

It has been examined above in section 4 regarding investment

treaty arbitration how an investment treaty arbitration is to be

conducted under two arbitration institutions, the ICC and the

ICSID and one ad hoc arbitration with the use of a set of already

made rules, the UNCITRAL Arbitration Rules. It has been specific

selected matters that have been examined, such as how the

arbitration tribunal is to be conducted, the applicable laws in

the arbitration, and the recognition and enforcement of the

arbitration award. I will now give my opinion of what arbitration

forum is best to choose regarding the rules that govern the

arbitration, the ICSID Convention, the ICC Arbitration Rules or

the UNCITRAL Arbitration Rules based on the examination of the

different matters.

128 At article 8(3). 51

1 Choosing of the Arbitration Tribunal in Regards to the UNCITRAL

Arbitration Rules 2010, the ICC Arbitration Rules 2012 and the ICSID

Convention

Regarding the choosing of the arbitration tribunal after the

UNCITRAL Arbitration Rules it is mentioned before129, that there is

an appointing authority, which can choose either the sole

arbitrator or the second arbitrator and possibly also the

presiding arbitrator in the arbitration tribunal. This is if the

parties cannot agree on a choice of how many arbitrators there are

to be in the arbitration tribunal, how to choose either the sole

arbitrator or two of the arbitrators in the case of a three

arbitrator tribunal. In this case there is an authority that can

help with such a problem according to articles 6, 7, 8 and 9 in

the UNCITRAL Arbitration Rules. In an arbitration conducted by the

ICC under the ICC Arbitration Rules the appointment of either the

sole arbitrator or the multiple arbitrators is to be approved by

the ICC International Court as according to article 11(4) in the

ICC Arbitration Rules. In an arbitration conducted by the ICSID

under the ICSID Convention the parties can also choose either the

sole arbitrator or the three arbitrators themselves, but if they

fail to do so then the Chairman of the Administrative Council can

choose the not yet appointed arbitrators according to article 38

in the ICSID Convention. The choosing of an arbitration tribunal

in the case of the ICSID and the UNCITRAL Arbitration Rules is the

same, because if they fail to choose either the sole arbitrator or

any of the arbitrators that they have to chose, then there is

someone else who will choose the not yet chosen arbitrators. In my129 Page 24 and 25 in this research essay.

52

opinion this gives an advantage in choosing either the ICSID

Convention or the UNCITRAL Arbitration Rules as the rules the

arbitration is to be conducted under, because the parties have a

choice of who is to constitute the arbitration tribunal, as

opposed to arbitration under the ICC Arbitration Rules, where the

ICC has to accept the appointed arbitration tribunal by the

parties, but the parties are free to appoint the arbitrators they

see fit for the arbitration tribunal. I, however, also see it as

an advantage to choose the ICC as an arbitration forum where they

have to accept the arbitration tribunal that has been appointed by

the parties. The fact that the ICC International Court has the

role of having the final say in the choice of the arbitrators that

the parties nominate, gives the right to the ICC as an institution

to secure that the arbitrators in the arbitration tribunal are

right for the arbitration. It can be if the ICC International

Court knows that one of the nominated arbitrators is not

completely independent from one of the parties as should be130 in

regards to article 11(1), then the provision of the ICC

International Court to confirm the nominations of the arbitrators

ensures that it will be independent arbitrators in the arbitration

tribunal. In my opinion it is good for the parties that there is

almost something like a “watch-dog”131 that might know if there is

something that does not suit with the chosen arbitrators, that one

of the parties might not be aware of. The choice of an arbitration

forum in regards to the choosing of the arbitration tribunal

depends on if the parties believe in the professionalism of the

130 This is an example that is given in Capper, above n 2, at 67. 131 The watch-dog reference is my own personal opinion about the role that can beimplied when the ICC International Court has to confirm the nomination of the arbitrator for the arbitration tribunal.

53

arbitrators they have chosen, that they are impartial and

independent of either party.

2 Applicable Law in the Arbitration in Regards to the UNCITRAL Arbitration

Rules 2010, the ICC Arbitration Rules 2012 and the ICSID Convention

The three different arbitration forums all offer the parties to

choose the applicable law to the dispute themselves, so in this

matter it is not more advantageous to choose one over the other.

If the parties want to be sure of what rules are to be applied to

their dispute, they can simply just choose the applicable rules

themselves. This would be advantageous to do if one of the parties

knows that a set of rules from another jurisdiction would be

advantageous for that side to be applied to the dispute. However

if the parties have not chosen an applicable law to the dispute,

then an arbitration tribunal in ICSID arbitration applies the law

of the contracting state party to the dispute with the rules of

international law that may be applicable to the dispute as stated

in the ICSID Convention article 42(1), and if the arbitration is

conducted under the ICC Arbitration Rules, then the arbitration

tribunal is to apply the rules of law to the dispute as it

determines appropriate for the dispute as stated in the ICC

Arbitration Rules article 21(1). When the parties have not chosen

the law that is applied to the dispute in the arbitration, and the

arbitration is being conducted under the UNCITRAL Arbitration

Rules 2010, then the arbitration tribunal applies the law that the

arbitration tribunal believes is the appropriate law. The

difference in this matter is that in the ICSID Convention and the

ICC Arbitration Rules the arbitration tribunal can apply rules of

54

law, and under the UNCITRAL Arbitration Rules it is just the law

that is to be applied.

The choice of an arbitration forum in this matter depends on if

the parties know that it would be an advantage for them to choose

an applicable law to the dispute themselves, or if it is better to

let the arbitration institution as in the case of the ICSID

Convention to apply the rules of law in the contracting state

party to the dispute because these rules might suit the parties

and the outcome of the award better, or the ICC Arbitration Rules

where the choice of applicable law is what the arbitration

tribunal decides is better to apply to the dispute, or the

UNCITRAL Arbitration Rules where is a choice of law, so one law

only, and not rules of law, where it is rules in different laws.

3 Administrative Support in Regards to the UNCITRAL Arbitration Rules

2010, the ICC Arbitration Rules 2012 and the ICSID Convention

An arbitration institution does not govern investment treaty

arbitration when the UNCITRAL Arbitration Rules are chosen to be

applied in an investment treaty arbitration. This is opposed to

the ICC Arbitration Rules and the ICSID Convention, where

respectively the ICC International Court and the ICC Secretariat

and the ICSID conduct the arbitration. This means that there is a

more free range for the parties to decide how the arbitration is

to proceed.

The ICC as an arbitration forum has advantages regarding the

administrative support it provides for the parties, because it has

55

a good supervision with the arbitration such as confirming the

nominated arbitrators by the parties. The Terms of Reference

document is a document, which summarizes the parties, their claims

and reliefs, arbitration place and the rules applied in the

arbitration.132 This is stated in the ICC Arbitration Rules article

23. The Terms of Reference document gives the parties a good

systematic overview of the details in the arbitration. This gives

an advantage to choosing the ICC as an arbitration forum, because

there is an overview of the process for the parties. This does in

my opinion speak to choosing the ICC as an arbitration forum,

because the parties get a better understanding of what the

information and factors in the arbitration are. Furthermore the

function that the ICC International Court has regarding the

reviewing of the awards before it is given to the parties also

shows the administrative support that there is in the ICC as an

arbitration forum.

4 Recognition and Enforcement of the Arbitration Award in Regards to the

UNCITRAL Arbitration Rules 2010, the ICC Arbitration Rules 2012 and the

ICSID Convention

No matter what arbitration forum is chosen, the arbitration

tribunal gives a final and binding award to the parties. The ICC

International Court differs from the making of the award than the

ICSID Convention and the UNCITRAL Arbitration Rules. The ICC

International Court reviews the awards before they are finalized.

Even though the ICC International Court cannot change the award

they have the right to send it back to the arbitration tribunal

with comments. Under the ICSID Convention the award is final and 132 Moses, above n 20, at 11.

56

binding on the parties, there is not someone to review the award,

and this also applies to an award made under the UNCITRAL

Arbitration Rules. In my opinion this must make the parties feel

very much secure and confident in the award that is then awarded

as the final award to the parties under the ICC Arbitration Rules.

I see this as an advantage in choosing the ICC as an arbitration

forum.

When an award is made in an arbitration that has been conducted by

the ICSID Convention, the ICSID can only be tried in the realms of

the ICSID. There can only be a challenge to the award in the ICSID

system, so the dispute will not to be able to be tried in a

national court. An award made under the ICC Arbitration Rules and

the UNCITRAL Arbitration Rules is subject to challenge under the

New York Convention, where the losing party can try and challenge

the award in the national courts of the seat of the arbitration,

either to annul or alter the award, if the grounds for such a

challenge are met. In my opinion the enforcement of an award under

the ICSID Convention is better than the enforcement of an award

made under the ICC Arbitration Rules or the UNCITRAL Arbitration

Rules, because an ICSID award as stated above can only be

challenged in the realms of the ICSID system, and not be referred

to national courts. However the enforcement is different from the

execution of the award. If it is an ICSID award then article 54(3)

and 55 are applied to the execution of the award. This means that

the state in where the winning party is trying to execute the

award, seize the asset, still has sovereignty, and it is the

national courts in this state that determines if the asset can be

seized or not. This depends on if the execution of the award

neither would have been allowed if it were a local award. If 57

states begin to make use of their sovereignty in the execution of

ICSID awards, it might wonder if this will partially erode the

advantage there is to recognition and enforcement under the ICSID

Convention. If it is an award made under the ICC Arbitration Rules

or the UNCITRAL Arbitration Rules, the losing party can also

resist the execution of the award in the state, where the assets

that are trying to be seized are located. It will then also be the

national courts of the state where the assets are located that

determines if the assets can be seized or not, if the award can be

executed or not. In this situation, the losing party here has

multiple options in trying to do something about having lost the

case in arbitration and trying to stop the assets from being

seized. This might constitute an advantage to arbitration under

the ICC Arbitration Rules or the UNCITRAL Arbitration Rules

regarding the enforcement of the award as opposed to the internal

system in an arbitration under the ICSID Convention.

V Conclusion

58

International arbitration is a method for solving disputes between

different parties, be it private parties, and states versus

private parties. It applies both to commercial contracts and

investment agreements. In both cases there has to be a valid

international arbitration agreement between the parties, which is

either in a commercial contract, an international investment

agreement or in a bilateral investment treaty between the parties.

The arbitration agreement will be an arbitration clause in the

agreement or treaty. In the arbitration clause the parties have

chosen what the arbitration forum to conduct the arbitration shall

be, either an arbitration institution or ad hoc arbitration.

In this research essay the focus has been on the choice of an

arbitration forum in a BIT, and more specifically it has been

examined in two different BITs between Denmark and Egypt and

Denmark and China. The parties in such a case is a foreign

investor and a host State, which is the state where the foreign

investment is made. Both parties enter into a BIT to promote

foreign investment in the host State, but also for the foreign

investor and the foreign investment to be protected sufficiently.

The arbitration clause in the BIT is in the case of a dispute

arising out of the BIT. A dispute can arise out of a BIT when a

BIT is breached. Arbitration in this case is called investment

treaty arbitration or investor-state arbitration, because of the

involved parties being a foreign investor and a host State where

the foreign investment is made. For an arbitration clause to be

used, there has to be a breach of the BIT between the parties,

which can be a non-compliance with the different rights and

protections there are in a BIT. The parties in a BIT have to

respect and comply with the different rights and protections in a 59

BIT. The right to a fair and equitable treatment for the foreign

investor by the host State, the right to full protection and

security for the foreign investor by the host State, the right for

the foreign investor not to have the foreign investment

expropriated by the host State, the right to national treatment

for the foreign investor by the host State, the right to a most-

favoured-nation treatment for the foreign investor by the host

State and the right for the foreign investor to use the umbrella

clause in the BIT. If such rights and protections have been

breached, then there is an option for either party to request an

arbitration.

The choice of an arbitration forum in a BIT is offered between

multiple arbitration forums. The chosen arbitration forums in this

research essay are, the ICC under the ICC Arbitration Rules 2012,

the ICSID under the ICSID Convention and the UNCITRAL Arbitration

Rules 2010. The procedural matters in the different arbitration

forums are the jurisdiction in the arbitration forum, the choosing

of the arbitration tribunal, the applicable law in the arbitration

and the recognition and enforcement of the arbitration award. They

are all somewhat alike, but in the matter regarding the choosing

of the arbitration tribunal the ICC Arbitration Rules differ from

the ICSID Convention and the UNCITRAL Arbitration Rules. They also

differ in the matter regarding the recognition and enforcement of

the arbitration award, because the rules in the ICSID Convention

are different from the rules that apply to the recognition and

enforcement of an ICC award and an award made under the UNCITRAL

Arbitration Rules.

60

The two chosen BITs in this research paper are both based on a

model treaty. They all have the exact same rights and protection

in regards to the foreign investors, but they do differ on the

right to settle a dispute arising out of the BIT through

investment treaty arbitration. In the BIT between Denmark and

Egypt there is a choice of four different arbitration forums, and

in the BIT between Denmark and China, the parties can only submit

their dispute to the national courts of the host State. This

should maybe make a Danish investor investing in China think extra

about agreeing to an investment agreement that is covered by the

BIT between Denmark and China, and likewise with a Chinese

investor investing in Denmark. As to the choice of four different

arbitration forums in the BIT between Denmark and Egypt, they

might consider narrowing the choice down to two different

arbitration forums, but the choice of which multiple arbitration

forums to list as options depends on what matters the parties

value the most in an investment treaty arbitration.

As this research essay has examined, the choice of an arbitration

forum depends on what matters the parties add more value to – is

it the choice of arbitrators, the matter regarding the applicable

law in the arbitration, the administrative support, or is it the

recognition and enforcement of the award they value the most.

61

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63

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64